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Friday February 23rd, 2024

Sri Lanka DDR plan reduces risks of insurers: Fitch

ECONOMYNEXT – An announced domestic debt re-structuring plan by Sri Lanka likely to reduce risks for insurers, whose rating are already under watch, Fitch Ratings said.

The DDR plan excluded banks and insurers except for dollar denominated domestic bonds.

“Fitch expects pressure on insurers’ investment and capital profiles to ease as the proposed plan will not have direct impact on the local-currency government debt holdings of insurers, banks and non-banking financial institutions,” Ratings said.

“Insurers’ holdings of Sri Lanka Development Bonds (SLDBs), which are foreign-currency denominated but governed by local law, will be affected by the debt restructuring proposal, as we expected.

“However, restructuring of the sovereign’s foreign debt, including international sovereign bonds (ISB), has yet to be finalised.

The full statement is reproduced below:

Sri Lanka’s Debt Restructuring to Ease Insurers’ Investment, Liquidity Pressures

Mon 24 Jul, 2023 – 2:22 AM ET

Fitch Ratings-Colombo/Sydney-24 July 2023: The Sri Lankan government’s debt restructuring plan is likely to reduce investment and liquidity risks for domestic insurers, Fitch Ratings says.

Fitch expects pressure on insurers’ investment and capital profiles to ease as the proposed plan will not have direct impact on the local-currency government debt holdings of insurers, banks and non-banking financial institutions.

Nonetheless, the proposal is only one aspect of the sovereign’s (Long-Term Local-Currency Issuer Default Rating: C) debt sustainability plan.

Ratings on Sri Lankan insurers remain on Rating Watch Negative (RWN) amid high investment and liquidity risks, pressure on regulatory capital positions and a weak financial performance outlook, which could undermine insurers’ credit profiles relative to other entities on the national ratings scale.

Insurers’ holdings of Sri Lanka Development Bonds (SLDBs), which are foreign-currency denominated but governed by local law, will be affected by the debt restructuring proposal, as we expected. However, restructuring of the sovereign’s foreign debt, including international sovereign bonds (ISB), has yet to be finalised.

Among Fitch-rated insurers, only a few have exposure to SLDBs or ISBs, which accounted for less than 5% and 0.2%, respectively, of the total invested assets of Fitch-rated insurers at end-March 2023.

The government has presented three treatment options for SLDBs, with the impact of any present-value losses on capital dependent on the treatment each insurer chooses. However, we believe that the satisfactory capital buffers maintained by Fitch-rated insurers would help to cushion any negative impact from the losses.

The investment and liquidity risk profiles of Sri Lankan insurers are closely linked with the sovereign, banks and non-bank financial institutions (NBFI) as their investment portfolios are dominated by fixed-income securities issued or guaranteed by the government (47% of invested assets at end-March 2023), corporate debt (21%) and deposits with local banks and NBFIs (10%).

The government’s domestic debt restructuring proposal excludes banks’ holdings of Sri Lankan rupee-denominated treasury securities, which will ease pressure on banks’ already stressed credit profiles. Fitch continues to maintain all ratings on domestic banks and NBFIs on RWN due to the heightened near-term downside risks to their credit profiles from capital, funding and operating environment risks.

We expect the sparse foreign-currency liquidity in the local banking system to continue to limit insurers’ ability to meet foreign-currency obligations, such as reinsurance payments and claim obligations arising from the small portion of foreign currency-denominated policies. Fitch-rated insurers’ foreign-currency insurance contract obligations are mostly reinsured. Fitch-rated insurers also have foreign-currency deposits with local banks to support their foreign-currency obligations.

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Sri Lankans may need to wait for Monetary Board meeting minutes despite new Act

ECONOMYNEXT – Sri Lankans may have to wait more time to read the meeting minutes of the Central Bank’s Monetary Board, a top official said, despite a new act that has made the central bank to be more transparent and accountable for its decisions.

Many central banks including the United States’ Federal Reserve, India’s Reserve Bank, and Bank of Mexico release the minutes of their monetary policy meeting to ensure transparency.

The new Central Bank Act passed by the Parliament in line with the guidance by the International Monetary Fund (IMF) includes measures for Sri Lanka’s central bank to be more transparent and accountable.

These measures include releasing the Monetary Policy Report every six months and the first such report was released on February 15.

However, the central bank has not taken a decision to release the minutes of the Monetary Board meetings on the monetary policy.

“Going forward, one day this could happen,” Chandranath Amarasekara, Assistant Governor at the Central Bank told reporters on Wednesday (21) at a media briefing.

“Right now, we have just started working on the new Central Bank Act. We are not there yet. There is no such decision on releasing minutes yet.”

The central bank in the past printed billions of rupees to keep the market interest rates artificially low and provide cheap funding for successive governments to propel a debt-driven economy.

It’s decision, however, led Sri Lanka into an unprecedented economic crisis in 2022 with sovereign debt default.

It also propped up the rupee currency artificially in the past to maintain a stable exchange rate at the expense of billions of US dollars. The move also contributed for the economic crisis and later the central bank was forced to allow over 60 percent depreciation in the rupee in March 2022.

However, none of the top central bank officials was held responsible for wrong decisions to hold interest rates artificially low with money printing and propping up the rupee. (Colombo/Feb 23/2024)

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Amid mass migration, Sri Lanka to recruit volunteers as English teachers

ECONOMYNEXT- Sri Lanka is planning to appoint foreign and expatriate volunteers to teach English for Sri Lanka students, the Ministry of Higher Education said, amid thousand of teachers migrating to other countries after the island nation’s unprecedented economic crisis.

Over five thousand teachers have left the country with the Education Ministry permission using the government’s circular of temporarily leaving state jobs while tens of thousands of teachers have left the country without informing the relevant authorities, Education Ministry officials say.

That had led to an acute teacher shortage in the country.

Suren Raghavan, the State Minister for Higher Education said the shortage has aggravated because most of the graduates who have an English degree become writers and join the private sector due to higher salary.

“They do not join government schools. This is a problem all over the country which is why we need to have an online system,” Raghavan told EconomyNext.

Separately he said on Thursday at a press conference that he had spoken to Canadian and Australian High Commissions to get the assistance of where their English teachers who have experience in teaching English as a second language in South Asia.

He also said that there is a number of teachers in the Unite Kingdom have shown interest in teaching English and they have experience in teaching in other Asian countries such as Burma and India while the teaching would be done free of charge.

The new move also comes at a time when the country’s English literacy rate is on the decline, according to the Minister.

President Ranil Wickramasinghe announced the English-for-all initiative three months ago with plans to improve English literacy at school and university level. (Colombo/Feb 23/2024)

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Sri Lanka tea production up 1.4-pct in Jan 2024, exports up 6.8-pct

ECONOMYNEXT – Sri Lanka’s tea production was up 1.4 percent to 18.73 million kilograms in January 2024, with high growns falling and low and mid growns rising, industry data shows.

High grown tea in January 2024 was 3.56 million kilograms, down from 3.36 million, medium growns were 2.6, up from 2.5 million kilograms and low growns were 12.56 million, up from 12.32 million kilograms last year.

Exports, including re-exports were up 6.88 percent to 18.76 million kilograms, industry data published by Ceylon Tea Brokers show.

Export earnings were reported at 102 million US dollars, up from 99.5 million dollars last year. The average FOB price was 5.45 US dollars a kilo down from 5.67 dollars last year.

Tea in bulk was 8.5 million kilograms valued at 12.79 billion rupees, tea in packets was 7.8 million kilograms valued at 13.1 billion rupees and tea in bags was 1.8 million kilos, valued at 5.06 billion rupees.

The top buyer was Iraq with 2.5 million kilos, up from 2.1 million last year followed by the UAE with 1.99 kilos, up from 1.86 million last year.

Russia bought 1.98 million kilos, down from 2.0 last year, Turkey bought 1.72 million kilos, from 2.3 million last year, while Iran bought 1.32 million, up from 614 million last year. (Colombo/Feb23/2024)

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